An allegedly "cosy" relationship between top Wall Street banks and credit rating agencies is under investigation by New York's attorney general, who has issued a flurry of subpoenas to examine whether leading financial institutions cheated in the hunt for valuable triple-A grades.

New York's prosecution chief, Andrew Cuomo, is scrutinising the behaviour of eight leading banks, adding to a rapidly spreading web of criminal investigations into Wall Street's questionable ethics in the run-up to the global financial crisis. Many financial experts believe that overly optimistic assessments by ratings firms were a key factor in creating an overblown market for derivatives and mortgage-backed securities.

Sources close to the investigation revealed that the banks targeted by the inquiry are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, which is owned by Bank of America. Subpoenas have also gone to the three major ratings agencies – Standard & Poor's, Moody's and Fitch.

Cuomo wants to see whether banks provided misleading, or incomplete, data to the agencies to get lucrative high ratings for packages of sub-prime mortgages, allowing them to sell them as safe investments to clients. Many such securities became virtually worthless when the US housing market collapsed in 2007 and 2008, as it suddenly became clear that underlying home loans had been written on an irresponsible basis to homeowners without the wherewithal to repay them.

Critics of rating agencies say they were had a conflict of interest because their revenue came from the banks whose securities they were supposed to be rating objectively. The agencies have come under attack for revealing too much of the methodology used in their judgments, which could have allowed banks to "game" the system by providing selective information tailor-made to tick the right boxes.

The New York Times reported that Cuomo was also looking into a "revolving door" of employees between agencies and banks' mortgage desks, to see whether close relationships could have compromised objectivity.

The former chief executive of the defunct Bear Stearns, Alan Schwartz, has cited excessive reliance on flawed credit ratings as one of the biggest causes of the credit crunch: "The whole system was relying on a belief that top-rated tranches of securities were of high quality."

In Congress, politicians have attacked the agencies – Carl Levin, a leading Democratic congressman, released detailed evidence last month on an investigation into Standard & Poor's and Moody's, remarking: "I don't think either of these companies have served their shareholders or the nation well."

But a solution to the problem has proven hard to come by, with little support for radical changes such as transferring responsibility for ratings to regulatory authorities, or moving from to a regime where investors would pay for ratings on the securities they wanted to buy.

Cuomo's probe comes as federal authorities investigate the business practices of a range of financial firms whose clients bought mortgage securities before the collapse of the housing market in 2008. Cuomo's office and the Securities and Exchange Commission (SEC) were "working hand in hand", the Wall Street Journal reported.Lawmakers have urged prosecutors to step up their investigation of the financial crisis, with only a single criminal case so far stemming directly from the meltdown. This case was brought against two Bear Stearns traders, Ralph Cioffi and Matthew Tannin, who were both acquitted last November.